I’ve been reading a lot of negative articles on Groupon, and I want to offer a different perspective. I’m not trying to play devil’s advocate, and I am not affiliated with Groupon in any way.

Many merchants have a negative experience with Groupon. It usually goes something like this: Groupon sends a lot of people their way and they are unprepared for it. Groupon customers are cheap rarely pay more than the deal value. Groupon customers aren’t repeat customers.

From what I understand Groupon does give you an idea of when to expect the flood gates. I mean, the merchant has to say yes to the deal and then the Groupon must be sent out and people must buy. To me, getting on Groupon is something like getting on Oprah, or to some people TechCrunch, Mashable, Digg, or Slashdot. If your website isn’t prepared for it, massive traffic sent from Slashdot can take down a website – called slashdotted. The difference is unlike a website that can get featured any second without any notice to the website owner, the Groupon merchant does have a heads up. Just like it’s not TechCrunch’s responsibility to make sure your website can handle the load, it’s not Groupon’s job either. Theirs is to feature the merchant and drive eyeballs and foot traffic.

The second common complaint I hear is that Groupon customers are cheap. As an occasional Groupon user myself, I always make it a point to tip on the full value. I’ve worked in the food service business and realize how little these people make. To friends who don’t know how Groupons work, I always try to explain to them the Groupon business model and how basically the merchant’s taking a huge hit to give them this great deal. However I am sure that there are Groupon clippers out there who are bargain hunters. I think it’s the merchants’ job here to upsell as much as possible to offset that. One example business that does a good job of doing just that was featured on Hacker News.

Lastly, the other common problem I hear is that Groupon users aren’t really repeat visitors. Related to that I also hear that sometimes people with Groupons are offered a different menu or a different level of service (usually lower). I am not sure how this would encourage anyone, Groupon or not, to want to come back. If I am offered a lower quality menu or lower quality service than the customer next to me, coupon or not, I am not coming back. The merchant must understand that it’s their responsibility to offer an amazing experience to create a customer out of that visitor. The Groupon user – I would not consider a customer – just a lead. In web terms, that’s basically a high bounce rate. They come and they leave. To me, as a web guy, it’s not too dissimilar from buying web traffic. I can buy a lot of Google adwords or Facebook ads and generate a lot of traffic to my site, but if my product sucks, nobody’s going buy or come back. It’s solely up to me to create a compelling product that users want to buy or create a website that users want to come back to. Getting all the foot traffic from daily deals can work for these merchants, if they are prepared to engage these customers and make an effort to get them added to their mailing lists to get them back in the door.

When we hear stories of merchants who have lost their shirt doing a Groupon, I always think that part of the onus is on Groupon’s salespeople (who are driven by their commissions to sell the biggest deal they can get manage), and the other part is on the merchant, to understand the math and economics of their own business. Groupon also doesn’t provide adequate tools to provide real transparency to their merchants, which is why companies like mobmanager.com are picking up where Groupon has left off, providing fraud prevention and ROI analytics for merchants.

The way I view Groupon is very much like buying web traffic in many ways. You have to be able to handle the load, you have to do a good job of selling and upselling so you can justify your ad spend, and you have to have a good product so people come back. Just as it’s easy to buy ads on the internet and write them off if they didn’t result in any sales, it’s easy to get burned by Groupon. In both cases, people didn’t know what they were getting into.

Great post! I completely agree with your first point about Groupon-using merchants knowing that traffic will increase due to the deal. I was always a little flummoxed when merchants complained about this as it was a great unknown in the equation. Groupon isn’t the mafia, you don’t have to join in.

The reality is that there are three reasons to do a deal with Groupon:
1) Revenue generation. If you need an influx of cash, great: Groupon pays merchants their share on the vouchers over three months, so it brings in liquid cash.
2) Advertising. It gets your name out to a lot of people.
3) Upsell opportunity. As you point out, that’s a great chance with an influx of these folks.

The problem is, Groupon is not selling this way. Instead, they sell this:
- New customer acquisition. You pay to acquire new customers, right? Not with Groupon customers: they are a self-selecting deal-seeking base, so the customers are almost predatory to a merchant trying to get these folks to come back.
- You’ll make up the discount with the amount the customer actually spends. As you note, Groupon customers (your behavior aside) are definitely not the ideal to most businesses for non-forced increased average ticket size.

I actually agree wholeheartedly about the merchant expectations: this is an ad promotion, and they should be prepared as such. They can set a cap, or tie it to a specific service: Groupon is not forcing this.

Groupon is the 800 lb. gorilla in the room, and whether it’s right or not, they will get negative attention to outright hate.

As to the points around repeat business or what customers get… now I do not have a retail business, but from a customer perspective who has bought only a few Groupons, there is an opportunity for the merchant, when one-on-one with me, to welcome me to come back again, whether it is with a coupon or even simply asking. This has yet to happen to me, and my guess it hasn’t happened to others. And only a handful of those welcomed back are needed to come back to make that endeavor worthwhile, and possibly more lucritive for the merchant overall.

mp/m

Joe SakJun 15, 2011 @ 16:03:18

I went to see a comedy improv show with a Groupon, and I really enjoyed it. I’d love to go back.

HOWEVER, when we showed the ticket guy our Groupon he just grumbled, got snarky with us, and growled “ugh, we don’t make any MONEY from Groupon.”

Okay. Well, then don’t sign up with Groupon. That was your decision. Don’t make me feel bad for using the Groupon to check out your show for the first time!

So, whatever. Maybe I’ll go back.

AmeliaNov 15, 2011 @ 10:04:33

I agree with @Joe Sak, sometimes you get a lot of attitude when you redeem your Groupon. I went to a nail salon once that gave my friends a hard time about not calling ahead when they wanted to redeem their Groupon, but they had no problem with me wanting to walk-in without an appointment and without a Groupon. Nowadays, I use LikeList for my recommendations on where to go and where to find deals for places I already know that my friends and I like. Plus, if I’m trying somewhere new, I can be assured that people I know have already been there and had a good experience, with Groupon sometimes you never really know what you’ll get.

TurandotDec 10, 2012 @ 08:23:07

I’ve become a great Groupon user! My husband and I have found several super restaurants most of which we’ve been back to at least 3 times (and ALWAYS tip on the full amount.

The Segway tours are phenomenal–I’m about to take my 3rd one, along Tampa Bay this time.

And the service businesses (massage, hair, facials) have been wonderful, too. Every operator has been beyond the pale.

Use groupons? You bet I do! Happily.

Jim laheyJan 22, 2014 @ 10:13:34

The idea doesn’t suck, but when your bosses expect you to keep your sales the same when you receive a flood of groupons. Multiple times I’ve seen loyal customers oversold and ripped off to make up for the Groupon users. That’s probably why employees hate Groupons, but it’s the owners fault for getting involved. That’s my opinion on it, biased yes..ha

About Pek Pongpaet

Pongpaet’s expertise ranges from product design and development, and martial arts. Prior to Pinstagram, Pongpaet was VP of Product at Spoton, a loyalty and social media company. He's worked at Accenture Technology Labs in the research department coming up with next generation user interfaces. At Roundarch, a technology and strategy consulting firm, Pongpaet’s work included envisioning and designing the dashboard of the future for the Tesla Model S electric car.